The new Family Law Act – Division of Assets and Debt

She got the goldmine, I got the shaft. They split it right down the middle, And then they give her the better half. -Jerry Reed

Family Property and Family Debt: A New Approach

5 Major Changes to the Law

#1 – COMMON LAW COUPLES ARE INCLUDED IN THE NEW LEGISLATION • Whether or not a couple has “cohabited in a marriage-like relationship for at least two years” is a threshold issue • 2 year limitation period to make a claim

#2 –CERTAIN PROPERTY IS EXCLUDED FROM DIVISION • The Family Law Act defines two critical classes of property, “family property” and “excluded property” • The FLA eliminates the all or nothing approach of the current legislation, whereby any asset ordinarily used for a family purpose is presumptively divided 50/50.

Excluded property under s. 85 • Property acquired before the relationship began • Gifts or inheritances • Settlement or an award of damages as compensation for injury or loss, with exceptions • Money paid or payable under an insurance policy, with exceptions

Excluded property under s. 85 • Property referred to in any of the above that is held in trust for the benefit of a spouse • Property held in a discretionary trust, with stipulations • Property derived from property or the disposition of property referred to in any of the above

The Increase in Value of Excluded Property is Not Excluded Family Property includes…The amount by which the value of excluded property has increased since the later of the date: – the relationship between the spouses began, or – the excluded property was acquired

#3 – A SPOUSE WANTING MORE THAN 50% OF “FAMILY PROPERTY”, WHICH IS NOT EXCLUDED, WILL HAVE A HEAVIER BURDEN OF PROOF • In the past, an equal division must be “unfair” to one spouse • The new standard is “significantly unfair”

BUT… • He or she can be more creative. • The current law limits the reasons to award one spouse more than 50% of an asset • The Family Law Act leaves the door open and provides a long list of examples.

Section 95, factors that may be considered: • The duration of the relationship • The terms of any agreement between the spouses, with exceptions • A spouse’s contribution to the career or career potential of the other spouse

Section 95, factors that may be considered: • Whether a family debt incurred in the normal course of the relationship • If the amount of the family debt exceeds the value of family property, the ability of each spouse to pay a share of the family debt • Whether a spouse, after the date of separation, caused a significant decrease or increase in the value of family property or family debt beyond market trends

Section 95, factors that may be considered: • The fact that a spouse other than a spouse acting in good faith – substantially reduced the value of family property, or – disposed of, transferred or converted property that is or would have been family property, or exchanged property that is or would have been family property into another form, causing the other spouse’s interest in the property or family property to be defeated or adversely affected

• A tax liability that may be incurred as a result of a transfer or sale of property or as a result of an order • Any other factor, other than the consideration referred to in subsection (3) that may lead to significant unfairness

#4 – FAMILY DEBT IS DIVISIBLE The “old” Family Relations Act • The term “family debt” is not defined nor is there any provision for the division of debt • The liabilities of one or both spouses are a factor under s. 65(1) to be considered by the court in its determination of whether an equal division of assets is unfair

The “new” Family Law Act • Section 86 broadly defines family debt • There is no requirement for a nexus between a debt and a family purpose or benefit. • Debts of a spouse that are strictly personal in nature may be the subject of a reapportionment claim

#5 – MORE DEFERENCE TO PROPERLY NEGOTIATED PRENUPTIAL AND COHABITATION AGREEMENTS • Under the current law, marriage agreement can be varied on the basis of unfairness (section 65) • Under the FLA, the test to vary an agreement is more rigorous than mere unfairness • The FLA sets out a two-part test for considering whether agreement should be upheld: (1) Procedural Fairness at the time the Agreement was made and (2) Circumstances at the time the Agreement is challenged –reliance and expectations.

Section 93(3) of the FLA The Supreme Court may set aside or replace with an order made under this Part all or part of an agreement described in subsection (1) only if satisfied that one or more of the following circumstances existed when the parties entered into the agreement:

• A spouse failed to disclose significant property or debts, or other information relevant to the negotiation of the agreement

Section 93(3) of the FLA • A spouse took improper advantage of the other spouse’s vulnerability, including the other spouse’s ignorance, need or distress • A spouse did not understand the nature or consequences of the agreement • Other circumstances that would, under the common law, cause all or part of a contract to be voidable

Section 93(5) of the FLA Despite subsection (3), the Supreme Court may set aside or replace with an order made under this Part all or part of an agreement if satisfied that none of the circumstances described in that subsection existed when the parties entered into the agreement but that the agreement is significantly unfair on consideration of the following: • The length of time that has passed since the agreement was made

Section 93(5) of the FLA • The intention of the spouses, in making the agreement, to achieve certainty • The degree to which the spouses relied on the terms of the agreement

Section 93(4) of the FLA The Supreme Court may decline to act under subsection (3) if, on consideration of all of the evidence, the Supreme Court would not replace the agreement with an order that is substantially different from the terms set out in the agreement.

In drafting agreements, the Family Law Act implies that counsel must: • Insist upon generous disclosure, and make a record of the documents and information disclosed • Require the other party to obtain independent legal advice • Obtain medical certificates of competence when there are any doubts about a party’s fitness or mental state

Questions? Thank You, Megan J. McWhirter Associate, Watson Goepel LLP